Diamonds Update

Sierra Leone, which for a decade was regarded as a byword for conflict diamonds, has made great strides in cleaning up its diamond trade dealings although government revenues from the business are minimal and the vast majority of the country's citizens are not benefiting from its exports of gems, according to a new report.

The report was produced by the Ottawa-based Partnership Africa Canada and the Freetown-based Network Movement for Justice and Development.

Official diamond exports showed an almost 100 percent rise to $126 million last year from $74 million in 2003, but according to the report this was overwhelmingly due to the Kimberley Process which compels the legal sale of diamonds and the improved security situation rather than efforts by the Sierra Leone government to crack down on diamond smuggling.

"Hardly anyone, including government officials, attributes (the rise in diamond exports) to internal curbs on illicit diamonds mining and smuggling, both of which continue to thrive," wrote the report's authors.

In an estimate based on information from other sources, the report believes $30 million-$170 million of diamonds were smuggled out of Sierra Leone last year.

The report pays tribute the transparency of the operations of Sierra Leone's Gold and Diamond Department which values diamonds for export and levies export taxes.

It points out, though, that the direct taxes the government receives from the diamond mining industry is tiny. The government's three percent tax on diamond sales brought in less than $4 million last year. During the 1991-2001 civil war, almost no diamond income made its way to government coffers.

Diamonds were used to pay for the arms that kept the war going, aided by the fact that Sierra Leone's shallow alluvial deposits can be mined with the most basic of tools, such as a pick and shovel, while smuggling the gems out was a simple matter due to the country's largely unguarded borders.

The report points out that the smuggling of diamonds, as with the legal gems trade, is largely controlled by members of Sierra Leone's Lebanese community which "dictate the price of rough diamonds, reap most of the economic rewards and exploit those in the production chain below them".

The report says that deep mining operations, of which there are few, could provide the key for increased job opportunities and increased government revenue.

Koidu Holdings, a company 60 percent owned by the Steinmetz Diamond Group, has invested more than $20 million in opening two kimberlite mines. Up to August last year, the firm exported 46,000 carats worth $9 million.

In stark contrast to the largely ungovernable artisanal diamond mining industry, a full 40 percent of profits from underground mining operations go to the government in corporation tax, surface rent and royalties.

As the Partnership Africa-Canada report says: "Clearly, Sierra Leone requires the investment that such companies can bring in order to develop the diamond deposits buried deep in kimberlite pipes. Most of the problems of today's diamond industry in Sierra Leone boil down less to willful corruption and mismanagement than to challenges of governance and procedure."